Tuesday, December 22, 2009

The news from the housing sector continues to be excellent. The surge in sales in recent months was undoubtedly helped by the anticipated expiration of the tax credit for first-time buyers, but I don't think we can dismiss this news entirely (not least because the credit has been extended). Sales are up no matter how you look at it. This market is now clearing, which means that prices have fully adjusted to the new realities. House prices are down and interest rates are down, making housing more affordable now than it has been in many decades. The inventory of homes for sale has shrunk dramatically, thus making room for all the homes that will be coming on the market as the result of the "second wave of foreclosures" that the world has been fretting about for most of the year.

It's extremely significant that the housing market has cleared to this extent. Prices are no longer falling, and that puts an end to the fears of a downward spiral that would undermine the balance sheets of the institutions holding mortgage-backed paper. It also restores confidence to the housing sector, as people realize that they are no longer trapped with a depreciating asset. Household balance sheets are again improving. Those who want to move to where there are more jobs, can. Life goes on, and things get better, and that's the way it should be. A lot of the plans that got put on hold a year or so ago are now being put back on the drawing board.

Calculated Risk has been skeptical of all good news for the entire year. The whole market is still skeptical. Everyone is once burned twice shy. Everyone seems to be fighting the last war. Meanwhile, the changes on the margin that I see are just about as good as one could hope for.

From the NAR's own data, actual home sales in November 2009 were 472,000 units versus 498,000 units in October 2009.

www.realtor.org/research/research/ehsdata

Actual home sales for the 12 months ending 11/30/2009 were 5.1 million units versus the seasonally adjusted annual rate of 6.5 million that was the headline number. Actual year to date 2009 home sales are 4.743 million units through 11/30/2009.

While the median sales price increased slightly from October, the average sales price actually fell from $217,300 in October to $216,400 in November. On the other hand, the year over year decline in average selling price was -3% versus a -4.3% decline in the median selling price.

Finally, the NAR predicts a decline in the seasonally adjusted annualized rate of units sold over the next few months.

You can quibble about seasonal adjustment factors and tax credit incentives all you want, but it doesn't change the fact that this market has clearly found a clearing price. This is major major news. It's one more piece of the virtuous cycle that is underway. There are just so many things that are fundamentally improving that I find it hard to believe this won't continue.

Hi Scott, since when is identifying the actual sales closing data versus a seasonally adjusted projected annualized rate quibbling? The raw data is certainly much better than it was in November 2008. However, both the sales data and the average price data have been trending lower since mid-year. Although inventory continues to decline, it has come at a price. Also, since NAR does not identify how much of the inventory decline has come from the hopelessness of the residential market, we can't tell if all of the inventory decline results from the market clearing the supply or the supply having been withdrawn.

For example, the NAR notes that 33% of November unit sales came from distressed sales. So, yes, things in the aggregate may have improved, but in the real world, they are not universally so. Just ask my neighbors who have reduced the price on their home (formerly valued at about $1 million) to $550,000 and still cannot sell it. Or ask my brother who has seen the market value of his rental property plunge 60%. And he's a member of the NAR.

I agree that real estate is in the process of stabilizing. The reality out there is far different than a seasonally adjusted annualized rate of estimated closings.